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Small Cap Expert Sleeps well with Tempur Sealy

For a while now, Tempur Sealy (TPX) has popped up in a lot of the quantitative screens that I run — and I just ignored it because, well, it’s a mattress company, asserts Tom Bishop, small cap expert and editor of BI Research.

I like a stock with a little more … pizazz. But, alas, 10 years into this bull market stocks with pizazz that haven’t been bid through the roof are hard to find.

More from Tom Bishop: Top Picks 2020: NV5 Global (NVEE)

With nothing sexier grabbing my attention this time and Tempur Sealy’s numbers looking pretty good frankly, I decided to at least take a closer look.

Now, here are some things to like about this company. First is that 45% EPS growth forecast for 2020 (and that’s the consensus of 11 analysts), and the fact that that’s not because its bouncing back from a bad year.

And this isn’t just a flash in the pan. Earnings are forecasted to grow a very healthy 24% in 2021, plus the 3-5 year growth rate is pegged at 26%.

Then there is the PE. At 15.6 times 2020 projected EPS, the PE to growth rate (PEG) is a remarkably low 0.6 (15.6 / 26). This is a cornerstone of the BI Research investment philosophy — Growth at a Reasonable Price.

I like to see the PEG near 1 or better and 0.58 is waybetter, indicating investors have not caught up to the bright prospects here.

The company has begun a new relationship with Big Lots and Mattress Firm in North America; during Q3 they completed the rollout of Sealy products at Big Lots and in Q4 they began shipping products to Mattress Firm.

Recently enacted anti-dumping duties against China manufacturing benefited all U.S. bedding manufacturers, another plus here. I should note that the company manufactures its mattresses almost exclusively in the U.S. with one plant in Denmark supplying the European market.

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The company opened its 50th Tempur-Pedic retail store in Q3 and expects to open a couple more in Q4. Ultimately management envisions 125 to 150. Stores open more than a year had very strong same store sales, up over 20%.

Interesting to note, the direct to consumer online channel is a thing here and saw double digit growth — andit’s profitable. The company has $1.7 billion of debt, but its EBITDA covers interest 6.6 times over. Bottom line, TPX is an intriguing buy.

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